The municipal market can expect to see a surge of municipal issuance this week, with $5.28 billion coming to market, up from last week’s revised $2.55 billion.
This week’s deals come off of a week of extreme volatility, driving investors to flock to safety and pushing muni yields down five to 12 basis points.
“When ratios soared, we definitely saw a strong professional bid in the 2018-2022 range and customers sitting on cash were staying short on the curve,” said Randy Smolik, senior market analyst at Thomson Reuters. “This is where the depth of the market is, but at times it can be fleeting as we saw on Thursday’s collapse of Treasuries following the poor bond auction.”
“While the muni market is cautious given limited supply, the deals went pretty much in line with expectations last week,” said Brian Wynne, head of the municipal bond syndicate at Morgan Stanley. “The market benefited from a light, high-quality calendar during the volatile week and that helped the overall market get through it reasonably well.” And if investors maintain an appetite for safe haven assets, municipal bonds should do well again this week.
The negotiated calendar will see $4 billion, up dramatically from last week’s paltry $1.88 billion. The competitive market will see $1.28 billion, compared to a revised $666.2 million last week.
The two largest deals come via negotiated bids, and are senior managed by Morgan Stanley. The Indiana Finance Authority is issuing over $1 billion of wastewater utility revenue bonds. The bonds will be priced for retail on Wednesday and institutions on Thursday.
Almost $700 million in 2011 Series A first-lien bonds have serial maturities ranging from 2012 to 2026 and are rated A1 by Moody’s Investors Service and AA by Standard & Poor’s. The term bonds mature in 2031 and 2041. About $275 million of 2011 Series B second-lien bonds have serial maturities ranging from 2014 to 2026, with term bond maturities in 2031 and 2041, and are rated A2 by Moody’s and AA-minus by Standard & Poor’s. About $28 million of Series 2011 C second-lien bonds mature in 2016 and are rated A2 by Moody’s and AA-minus by Standard & Poor’s.
“We should see a very good reception for it,” Wynne said. Much of the deal comes in the longer-end of the maturity scale and fits into the central purpose revenue area that investors have been focused on lately, he said.
“We’re having an extensive marketing program with the transaction including investor lunches and one-on-one meetings,” Wynne added. “There are approximately 30 investors participating in the road show.”
Morgan Stanley is also the book-runner on $980 million of power supply revenue bonds issued by the California Department of Water Resources. The bonds are rated AA by Fitch Ratings, AA-minus by Standard & Poor’s, and Aa3 by Moody’s. They will be priced for retail on Tuesday and institutional investors on Wednesday, and have serial maturities ranging from 2012 to 2021.
When the issuer prices, Wynne expects yields to tighten 10 to 15 basis points from last November, when the issuer came to market and spreads were between 45 and 51 basis points to the triple-A Municipal Market Data scale.
The Ohio Housing Finance Authority will issue $175 million of single-family mortgage revenue bonds. Underwritten by Barclays Capital, $70 million of 2011 Series 2 bonds have serial maturities ranging from 2012 to 2022 and term bonds maturing in 2025 and 2028. The remaining $105 million 2009 Series 1C bonds mature in 2041.
In the competitive market, Kentucky’s Louisville and Jefferson County Metropolitan Sewer District will issue $267 million of refunding bonds on Wednesday.